Today, Techcrunch post an interesting article titled ‘Bubble Indicators’ (http://www.techcrunch.com/2007/10/09/bubble-indicators/)
which get me seriously thinking if Web 2.0 bubble is itself a hype or fad.
Rather than taking bubble literally, I choose to use an analogy to explain why Web 2.0 bubble won’t happen.
Just imagine the bubble as a balloon. It need to inflate beyond a certain size before it burst. As learnt from the dotcom bubble, the main critical factors need for bubble to expand is the number of startups that take outside investment, and the amount of investor’s money used to fuel those startup. The larger the number of those startup and the larger the money invested for the startup, the faster the bubble expand (It doesn’t really matter if the startup is doing some ‘stupid idea’ because no-one know if the startup will succeed and especially in the world where everyone is looking for the ‘NextbigThing’, what’s more, ‘stupid idea’ can also succeed temporary if marketing and PR is done right (eg PointCast) ( For one, I don’t believe that there is ‘stupid idea’ as long as it get implements and refine along the way, it is only ‘stupid idea’ if one spend so much time thinking about it and not doing anything at all, just dreaming away or waiting for someone else to do it)
Those bootstrapped startup is excluded afterall if one only burns his own money, he has only himself to lament about. It takes influential investors (Banks, VC, reputable investors etc) to incur huge losses that large enough to create a commotion and impact.
Fortunately for the industry, or rather, unfortunately for the bubble, those critical factors come under control by the self-corrected market.
One important watchdog that prevents the bubble from bursting is the blogging media. In the dotcom era, blogging is not prevalent (WordPress and MoveableType don’t formally exist then) and website is effectively used as a marketing tool for company to promote own agenda, therefore the public is generally less well-informed, lack knowledge and network to make rational decision, thus likely to speculate on their investment of companies.
However, thing changes after dotcom burst with the active blogging community and with blog becoming a more objective and credible source of information which constantly serve to engage, educate, remind and advise people of any follies and irrational acts. There are many blogs that run by respectable VCs, entrepreneurs etc who regularly blog about their thoughts and experiences, along with those comment by bloggers who serve to provide alternative views and two-way communication. It is this form of interaction that seek to correct and ridicule any irrational decision and acts that it really make it hard for any stakeholders of business to make any serious mistake (Of course, unless the business remain shrouding in secrecy to stakeholders, user etc, and doesn’t make any effort to engage the open community). And it helps that popular and influential blogger in the Web 2.0 blogosphere like those of Techcrunch, ReadWriteWeb etc is respectable enough that most people tend to take their warning and advise seriously. Hence, whenever there is potential bubble burst warning by those watch, the bubble will deflate to a safe level. This usually means the investor becoming conservative in their investment and tend to invest in business with sound business model and profitability, thus creating a more rational and controlled market.
Another reason is that there is learning effect, and people do seriously learn of dotcom mistake because the blogging community serve to constantly remind them of.
There might be a lot of startups, but only a few of startup really secure investment large enough to be mentioned (In term of millions). And for it to take large investment, it not only need to be innovative, it also must have the greatest potential to be a leader in its own field/area/country (eg Joost, Second Life, HipiHi in China) with possibility of creating the NextBigThing and becoming a disruptive technology. Or, it need to be strategic me-too clone (MetaCafe competing with Youtube) that compete with the market leader with the potential to be acquired. The cheap cost of doing a startup has indeed upped the ante of criteria for investment.
And once a while, when a startup with a particular category (Video like Youtube) is acquired by Google, it’s likely that Yahoo, Microsoft and other big players will followed (But seriously, how many big players are there ?), with new startup seeking investment to capitalize on the trend. This tend to last a few months of which the zest will slowly die off and it is unlikely that any investor will continue to throw money on new startup doing the same thing where the ‘hype’ is already over. So as long as there are few big established ‘daddy cool’ which are market leader themselves (Google, Microsoft, Yahoo etc) controlling the game field, it is unlikely those startup fever will get out of control. Yes, their acquisition will help to spur a few look-alike wannabes but these wannabes aren’t going to impact anything large enough to warrant a bubble burst. The effect of acquiring the NextBigThing startup that create hype and potential by market leaders seems to reduce the possibilities of a bubble burst because everything ‘move on’ which dramatically deflate the bubble.
So on the whole, I still see a rational and conservative Web 2.0 market. Rather, what I see now is more of ‘clone’ bubble (Clones that more or less doing the same thing, likely to be bootstrapped than outsider-invested) rather than ‘financial’ bubble. The Web 2.0 era is nowhere as fanatic as the dotcom era. Yes, there are some noises here and there, but that’s about it, nothing really harmful.
In fact, the only time the bubble is going to burst is only when we start believing that there is a bubble at the peak of bursting. There is currently no large ‘bubble’, let alone be burst.